Across the road from each other, two corner shops are selling the same essential items. Wilbur and Pascal own the shops respectively. Both have traded for the same length of time without the need for competition. Pascal retires and passes the business over to his nephew, Marcel, who is determined to attract Wilbur’s customers and increase his profits.
On week one Wilbur opens his shop as does Marcel who places in his windows the prices of basic groceries.
Dozen Fresh Farm Eggs = £2.00
Baked Beans 60p
200g pack of Bacon = £2.50
100 Yorkshire Tea bags = £4.00
1 Litre of Fresh Milk = £1.00
Quality Bread = £1.50
Wilbur smiles, makes a phone call and continues as he does every day. Meanwhile Marcel is more than pleased when a white van pulls up and buys all the basic groceries as advertised.
Three days later after Marcel receives his deliveries, Marcel notices Wilbur has placed flash sale signs in his shop window, matching his price. Marcel dashes inside and advertises the groceries at the following prices:
Dozen Fresh Farm Eggs = £1.80
Baked Beans 55p
200g pack of Bacon = £2.20
100 Yorkshire Tea bags = £3.50
1 Litre of Fresh Milk = 95 p
Quality Bread = £1.35
Once again, the white van pulls up to buy all the advertised groceries. Oddly enough, later in the day, Marcel notices his usually loyal customers are buying their goods in Wilbur’s shop.
Three days later after taking stock of the new deliveries, Marcel notices Wilbur has matched his prices and responds by lowering his prices to the following:
Dozen Eggs = £1.50
Baked Beans 45 p
200g pack of Bacon = £2.00
100 Tea bags = £2.00
1 Litre of Milk = 90 p
Bread = £1.30
And so, the days roll by as do the deliveries after which a white van man arrives to buy Marcel’s basic groceries. After that, he sits back as very few customers enter his shop. The competition continues until Marcel offers the following prices.
Dozen Eggs = 80 p
Baked Beans 35 p
200g pack of Bacon = £1.00
100 Tea bags = £1.50
1 Litre of Milk = 60 p
Bread = £1.00
. . . and Wilbur continues selling the goods at the usual price to more and more customers.
Then one day Marcel does not open the shop doors. The word is, he has, gone bust. At lunchtime Marcel walks into Wilbur’s shop and looks around and asks Wilbur:
“Why is it I am bust, but you continue to take my custom when you sold the same goods at the usual price?”
Wilbur responds with a knowing smile. “For many years your uncle and I had an understanding and respected our customer base selling quality without competing.”
“But you were also lowering your prices?”
The white van man is my son, and he bought ALL your bargain stock for me. That meant until the next delivery you had no basic groceries to sell. As your customers were unable to obtain the basics from you, they came into my shop and in turn, bought other items. When you restocked the basics, I placed signs in my windows matching your previous prices. You reacted by dropping your prices even further. My son would turn up early to buy your stock.
. . . Eventually, because you were selling groceries at prices below cost, you had no money to buy the quality goods and basics expected by your customers, while I maintained quality and service at your expense.”